Single euro zone budget gains momentum ahead of summit

BRUSSELS (Reuters) - Debate about the idea of creating a separate budget for euro zone countries is intensifying in the run-up to an EU summit later this month, with less opposition to the proposal than many officials first expected, diplomats say.

A work-in-progress sign is seen near the EU commission headquarters in Brussels December 8, 2011. REUTERS/Philippe Wojazer

At a private dinner held last week among the EU ambassadors of several northern European countries, including Britain, Denmark, the Netherlands and Finland, those present were surprised to find a fair degree of consensus on the proposal.

“I wouldn’t say that there was strong support for it, but there was certainly a feeling that this is an idea that should be explored in more detail,” said one diplomat briefed on the discussion that took place at the gathering.

The single budget proposal was first sketched out by Herman Van Rompuy, the president of the European Council, in a paper circulated in September as part of an effort to stimulate debate about how Europe’s monetary union should be improved.

In the paper, Van Rompuy said a “fully fledged fiscal union” among the 17 countries that share the euro could involve the creation of a single treasury office and “a central budget whose role and functions would need to be defined”.

Those suggestions have since been refined into guidelines that will form the basis of discussion among EU leaders at the summit on October 18-19. The idea will also be explored among euro zone finance ministers at a meeting in Luxembourg on Monday.

There is still no clear definition of what a single, central budget would entail, but Germany strongly supports the idea and France is on board too, which in terms of euro zone decision-making means it has substantial momentum.

Britain’s support, underlined by Prime Minister David Cameron on Sunday, is also significant, even if it stems more from a desire to distance Britain from the problems of the euro zone than from any solidarity with the single currency club.

“There will come a time when you need to have two European budgets, one for the single currency, because they are going to have to support each other more, and perhaps a wider budget for everybody else,” Cameron told the BBC on Sunday, the first day of his Conservative Party’s annual conference.

“I don’t think we will achieve that this time, but it is an indicator of the way that Europe is going,” he said.

SINGLE EURO ZONE BUDGET

While conceptually it may make sense for the countries that share one currency to also create a single budget, it immediately raises thorny questions about sovereignty, budget discipline and long-term ambitions.

Germany’s precise ideas about how a single budget would be financed, managed and employed are likely to be vastly different from Portugal‘s, Estonia‘s, Italy’s or France’s once leaders and finance ministers get into the nitty-gritty of the concept.

Yet there are already some broad proposals doing the rounds, including the idea -- backed by France -- that the budget could be financed by revenue from a financial transactions tax (FTT).

Germany and France are already driving an initiative to establish an FTT among nine euro zone, the minimum number permitted to do it alone. There is already support from eight countries and a ninth could come on board as soon as next week, giving added impetus to the plan.

But other euro zone countries that might like a single budget, such as Finland, are lukewarm on the idea of an FTT, underscoring just how complex negotiations could become.

There are also differences of opinion about why a single budget is desirable. Germany sees it as a means of building solidarity and tightening budget rules without moving to the more extreme suggestion of mutualising all euro zone debt.

France sees a single budget more as a means of ironing out divergences in social and employment policy, arguing that it could be used to help underwrite unemployment benefits in a country suffering from much higher joblessness than the rest.

While many countries are voicing quiet support for the idea, it is also clear that most have a conflicting take on what it would involve if it were ever to become a reality.

Some have hinted that it could involve each country setting aside a fraction -- 0.3 or 0.5 percent of their GDP -- for a communal budget, others dismiss that suggestion out of hand.

“The modalities are completely unknown,” said one EU official when asked how a single budget might work.

What’s more, even if momentum is growing and it is likely to be a core part of discussions at the October 18-19 summit, it could be years before it becomes reality even if everyone supports it.

Such a fundamental change to how the euro zone is administered would more than likely require a change to the EU treaty, a long, complex and divisive process.

The treaty has already been tinkered with since the debt crisis began and there is a reluctance to open it up again.

Even if German Chancellor Angela Merkel were to support treaty change, it’s unlikely she would want to do it until after Germany holds elections in September next year.

But there are also European Parliament elections in June 2014 and most analysts of euro zone politics do not expect it to be possible to drive through substantial treaty change until after that, meaning it may only happen in late 2014 or 2015.

Additional reporting by Guy Faulconbridge in Birmingham and Robin Emmott in Brussels, Writing by Luke Baker; editing by Ron Askew